Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.
10+1 trends of Russian beer market 2015-2017Despite of the moderately negative prognoses for 2017, the beer market can be stabilized soon. Yet the years of the negative dynamics have resulted in marketing being limited just to “optimization” and the art of balancing between price and volumes. Bigger supermarkets share means stronger trade marketing. These processes are connected to the majority of the described trends. At the same time, the federal brands inflation leads to searching for new tastes, sales channels and contact formats that expand the product range and diversify the beer market, but do not imply a substantial volume increase. Let us enumerate and further discuss the ten trends of the beer market we can see in 2015-2017 as well as the major event of 2017.
Beer market of Ukraine 2017In the first half of 2017, the Ukrainian beer market goes on decreasing slowly. Yet, the companies manage to compensate their lost volumes by raising prices and improving the sales structures. This results in the mid price market segment reduction while the sales of premium brands are rising. These processes are connected to position strengthening of companies Carlsberg Group and Oasis and the market share reduction of Obolon. Most of the novelties by the market leaders belong to craft or hard lemon categories.
Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
AB InBev thirsty for a deal? Could be SABMiller
* Brokers divided whether a deal makes sense
* Other candidates: Modelo, Diageo, PepsiCo
By Philip Blenkinsop and David Jones
BRUSSELS/LONDON, March 18 (Reuters) - With Bud swallowed and almost digested, there is growing speculation that Anheuser-Busch InBev (ABI.BR: Quote) may be thirsty for another deal.
Some brokers have already been exploring the possibilities and see SABMiller (SAB.L: Quote), AB InBev's nearest rival, as a prime target as this would increase the world's largest brewer's exposure to fast-growing emerging markets.
Such a takeover would combine AB InBev's Budweiser, Stella Artois and Beck's brands with SABMiller's Miller Lite, Peroni and Grolsch and produce about a third of the world's beer.
Belgium-based AB InBev bought Anheuser-Busch for $52 billion in the world's second biggest cash deal in 2008 and with its three-year savings target of $2.25 billion likely to be exceeded, its debt although still high is falling fast.
AB InBev executives are focused on internal growth and bringing its net debt to core profit (EBITDA) ratio down to 2 times by 2012, but Chief Financial Officer Felipe Dutra said the debt ratio target did not preclude it buying again.
Net debt has fallen to $39.7 billion at the end of 2010 from $56.7 billion just after the Anheuser-Busch deal, bringing its net debt/EBITDA ratio down to 2.9 from 4.7.
If AB InBev is back in the market for another mega deal, here are some of its options:
The most obvious purchase for the AB InBev would be the other half of Grupo Modelo (GMODELOC.MX: Quote), the Mexican brewer of Corona beer which holds a 56 percent share of the world's sixth largest beer market.
AB InBev took a 50 percent stake via its purchase of Anheuser-Busch, but the joint owners do not see eye to eye.
Modelo's controlling family shareholders challenged InBev's right to own the stake, although an arbitration panel dismissed their $2.5 billion claim last year. [ID:nLDE66B0RE]
Grupo Modelo itself has consistently said it has no plans to sell an equity stake to its partner. [ID:nN05131397]
If the Modelo families do eventually sell it is reasonable to assume that the deal would not be cheap -- probably around $15 billion, which would include a premium of some 50 percent.
"The Modelo business is managed pretty well, so you would question whether AB InBev would be able to extract the necessary savings to make it work," said Simon Hales, analyst at brokers Evolution Securities.
Analyst Eddy Hargreaves at brokers Collins Stewart says AB InBev could and should bid for SABMiller to create a beer giant he dubs ABSAB. He says it has already looked closely at SABMiller and a deal would be strategically and financially sensible with anti-trust issues not a big concern.
"We think AB InBev ought to be interested in SABMiller, and SABMiller's interest in Foster's risks drawing a bid. We think it is likely AB InBev would move on SABMiller before the latter could consummate the Australian transaction," he said.
SABMiller is favourite to buy Foster's (FGL.AX: Quote) beer business for more than $10 billion after the Australian group decided to spin off its wine unit to focus on beer. [ID:nL3E7EH0AR]
Hargreaves says an AB InBev deal at 28 pounds a SABMiller share would value the brewer at $71 billion. After a $8 billion disposal of SABMiller's stake in MillerCoors, AB InBev's closely watched debt to EBITDA would rise to 4.2 times compared to the 5.5 times after its $52 billion Anheuser-Busch 2008 deal.
Credit Suisse's Anthony Bucalo says, "Over time we believe both these companies strategic interests will continue to align and this would be of benefit to both sets of shareholders".
The geographic fit would be good with SABMiller adding its presence in Africa, eastern Europe, China, Colombia and Peru to AB InBev's in North and South America.
The United States would present a problem as the combined group would have a near 80 percent market share and would almost certainly have to sell SABMiller's 58 percent stake in MillerCoors, its U.S. joint venture with Molson Coors (TAP.N: Quote).
Trevor Stirling, analyst at Bernstein Research, says AB InBev would struggle to get a good price for the stake because there would be effectively only one obvious buyer, Molson Coors.
ABSAB could also take hits in China, where it might be forced to relinquish SABMiller's 49 percent in brewer Snow, as well as in Africa, where SABMiller Africa has a cross shareholding with privately-owned French drinks rival Castel.
"If I were AB InBev, I would ask could I pay 28 to 30 pounds and still make money on the deal and I think the answer is 'no'," Bernstein's Stirling said.
Soft drinks would be another problem. AB InBev is the biggest bottler outside the United States for PepsiCo (PEP.N: Quote) and SABMiller a big bottler for Coca-Cola (KO.N: Quote). The combined group would have decide between the two soft drink giants.
Some analysts believe AB InBev may look at spirits and beer group Diageo (DGE.L: Quote) which is of a similar size to SABMiller.
They argue Diageo's share price has been pedestrian in recent years and it might be vulnerable especially if AB InBev looks closely at Diageo's high cost base and sees a rationale for bringing worldwide beer and spirits businesses together.
Others say spirits and beer do not mix well, and that AB InBev's success in cash generation and cost cuts has come from linking beer businesses. It might not want the distraction of running the high marketing budget of a spirits group.
Diageo and SABMiller could be tempted into a merger to escape the clutches of AB InBev, but analysts say this would be seen as a defensive move and unlikely to be welcomed by markets.
AB InBev is already the largest Pepsi bottler in Latin America and the two groups have an alliance to purchase a range of items from advertising to travel.
A takeover has been mooted for some time. In terms of distribution, there are clear savings to be made.
But PepsiCo is more than just the maker of Pepsi-Cola, Gatorade and Tropicana juices, with a substantial food business such as Frito-Lay snacks and Quaker oatmeal.
Its drinks operation could cost some $60-65 billion, but would PepsiCo be willing to sell what is effectively the heart of its operations?
18 Mar. 2011